Estate as IRA Beneficiary

[Guest JROSSITTER]

At death, estate is IRA beneficiary, so distribution period is 5 years (pre-RBD) or decedent's remaining life expectancy (post-RBD). Is there any problem if estate retitles IRA in the name of its beneficiary/ies--IRA of decedent, fbo beneficiary 1, etc.--so estate may be closed? Distribution period, of course, remains unchanged.

[BPickerCPA]

There is no tax problem with doing this. There should be no legal problem either.

Unfortunately, some custodians have an internal problem doing this. I hope you don't run into that situation.

[Guest franky]

In order for beneficiaries of the estate to be titled as beneficiaries of the IRA, and thus reported to IRS on Form 5498 as such, does the decedent's will need to specifically give the executor the right to assign the benefits? I've heard of many IRA trustees/custodians who have refused such requests because they claim that if the estate is the beneficiary, then IRA must be reported in name and TIN of estate.

[Guest Derelict]

I'm not sure how the beneficiary would legally be allowed to be changed after death.

I do not know any custodians that would allow this short of a PLR, which i do not think the service would rule positively anyway. See recent PLR 200343029.

[BPickerCPA]

The Service DID rule positively on this. See PLR 200343030, released in the past week.

[Guest Derelict]

Interesting read! Didn't catch that one. This is not the first time I've seen this issue raised and I do think there should be some sort of provision for estates so ppl can close their books on them in a reasonable time.

I still wouldn't do it short of a PLR

[Appleby]

It depends on what we mean by positively…

In PLR 200343029 the spouse was the sole beneficiary of the estate of the deceased and had sole discretion over the disposition of the assets. She was allowed to eventually roll the assets to her own IRA.

In PLR 200343030 , a non-spouse beneficiary was allowed to transfer the assets to an inherited IRA titled in her name and the deceased’s name ( as is required for an inherited IRA)

The issue of tax reporting was not directly addressed in either PLR…however, one can assume from the rulings what those requirements are:

In 200343029 , since the spouse was allowed to treat the IRA as her own- that means that any post-death distribution will be reported under her name and TIN

In 200343030- the non-spouse beneficiary was allowed to move the assets to an inherited IRA of which the title included her name. However, IMHO this was only for purposes of identifying her portion of the inherited assets. The fact that she was required to distribute the assets over the remaining life-expectancy of the deceased and not her own, shows that she was not treated as the beneficiary. If the estate had been disregarded (for lack of a better term) as it was in PLR 200343029, then she would have been allowed to distribute the assets over her life-expectancy and not the remaining life expectancy of her deceased father … I say all this to say, the post death distribution must still be reported under the TIN of the estate of the deceased. In a case such as this- it appears the PLR was not necessary, as it did not make any allowances that a fair Custodian would not make… for instance, allowing the three beneficiaries of the estate to establish separate inherited IRAs and also allow the inherited IRA to be titled in the name of the deceased and the beneficiary with one key difference to the provision of titling allowed in the PLR, the difference being the title would be along the lines of “ IRA FBO John Doe’s Estate/ b/o John Doe/Jane Doe’s share” Jane being the beneficiary of the estate…

[BPickerCPA]

Appleby,

I have to disagree.

There is no way a custodian will make checks out to an individual, as in PLR 200343030 (the daughter), and the tax reporting will be anything but that individual's SSN.

The whole point of the exercise is not to keep the estate open.

Let me give you an analogy:

Decedent owned stock in IBM. The stock goes into the estate after death, and the estate then transfers ownership to the heirs under the will. Who will get the dividends after the transfer? The heirs. In whose TIN are those dividends reported? The heirs' SSN.

[Appleby]

Regarding the matter of the payee…in an IRA situation it could be different (from the IBM stock). The trustee of the estate could instruct the IRA Custodian to make the check payable to an alternate payee, such as the beneficiary of the estate…This is actually quite common when a trust or the estate is the beneficiary –the 1099-R is issued to the beneficiary, regardless of who or what was the payee of the check disbursed

Regarding the reason (or point) of the exercise, I am not sure of the IRS’s intention…but if the intention was to treat the daughter as the beneficiary instead of the estate, then why not treat her as the beneficiary in accordance with regulations…which would mean allowing her to use her life expectancy. Requiring the beneficiary to use the remaining life expectancy of the deceased should only be applicable if:

-The beneficiary has a shorter life expectancy than the deceased or

-There is a non-person is designated beneficiary (such as when an estate is the beneficiary) – which the IRS’s treats as no beneficiary being designated.

[BPickerCPA]

There is a difference between the beneficiary who is receiving the distributions, and the identity of the designated beneficiary, who determines the distribution payout period.

In PLR 200343030, the IRS IS following the regulations. The regs state that a beneficiary who inherits through the estate, cannot use their own life expectancy. In other words, they are the beneficiary, but not the DESIGNATED beneficiary. Since the estate was the original beneficiary, there is no designated beneficiary. But the daughter is most definitely the beneficiary.

There are other examples in PLRs.

[mbozek]

I am not sure of what is the issue here. In the 030 PLR all that was done was retitle the IRA so as to permit direct payment to the beneficary (IRA of J. Jones, deceased, fbo Jane doe, beneficiary) with the bene tax id so as to permit the payment to the beneficary without the need to channel each payment though the estate. The distribution period did not change and the beneficary is the same so all of the MRD rules are complied with. While the estate would have taxable income for each IRA payment, it will deduct each payment made to the beneficary so as to 0 out the tax impact of the payments it receives.